Thomas J. Stringer, Esq.

Tim Feemster

Managing Principal, Foremost Quality Logistics

Food Processing Industry Continues to Evolve

Food processors worry about rising energy costs among other concerns, while trying to keep up with consumers' demands for healthy, innovative products.

Lisa A. Bastian

Aug/Sep 08

Today's ultra-modern food processors share a common mission: to use various processing techniques to create marketable, packaged goods from crops or animal products that are shelf stable. Countless variations of these transformed, time-saving, "ready-to-eat" products are welcomed in the homes of harried, busy consumers who appreciate their many benefits, including convenience, safety, and variety. When used in combination with fresh foods, nutritious and delicious processed choices have become an important part of the modern, healthy diet.

Food manufacturing is one of the nation's largest manufacturing sectors. According to June 2008 U.S. Department of Commerce data, it accounts for more than 10 percent of all manufacturing shipments. In 2006, for example, 28,000 establishments operated in food manufacturing and the value of food shipments totaled $538 billion. That same year, 99 mergers and acquisitions (source: The Food Institute) helped consolidate many of the biggest players.

Survey Reveals Crucial Concerns What issues give food processors insomnia? Food Processing found out when it analyzed the results of its seventh annual manufacturing survey, released in January 2008. The 395 respondents to this survey represent a wide spectrum of food and beverage sectors.

With the Centers for Disease Control estimating that food-borne diseases account for 5,000 deaths and over 300,000 hospitalizations each year, it's no surprise that food safety remains the number-one concern of food processors for the seventh consecutive year. Three-fourths of the processors reported putting in place additional food safety measures in 2007, with about the same number expected to do so in 2008.

When specifically asked about E. coli worries, 40 percent of the respondents said they were "extremely concerned," while 25 percent said they were "very concerned." Safety issues in China affecting U.S. processing efforts also were mentioned. (In next year's survey, these same processors may be talking about 2008's 1,100 salmonella cases, allegedly tied to certain jalapenos and/or tomatoes.)

Energy moved up a few notches in ranking, as petroleum prices have revved up commodity prices. Complicating the situation is the fact that diverting corn to ethanol production has increased the price of corn - a primary feedstock for livestock. This has, in turn, increased prices for milk, eggs, and beef, as well as packaging (most of which is petroleum-based).

Sourcing issues dealing with cost reduction and supply-chain improvements were noted, as well as the consumer desire to find more locally sourced, "green" and/or organic products. The greening of this industry, like so many others, has really just begun; its progress is hampered only by a lack of technology advancements and more intense market pressures.

Other concerns.Labor issues took the third place slot - a lower position than in previous years. Thankfully, physical plant security wasn't as big a concern as in prior surveys; it's postulated that this may be due to the fact that more robust security procedures and tools were put in place after 9/11.

Increased automation was still thought to be key for desired increased production. Almost 70 percent of the respondents thought conservation efforts could help offset rising energy prices, and environmental issues were "very" or "extremely" important. "There's a change of consumer perception regarding the environmental impact of consumer products," noted an engineering consultant for process engineering at the Coca-Cola Co. "Consumers will start to challenge the logistics of certain products and their distribution based on the environment."

About 77 percent of those responding to Food Processing's survey anticipated production at their factory would increase by at least 5 percent in 2008. However, it should be noted that this forecasting was done prior to 2008's skyrocketing fuel prices.

More WorriesWhat else concerns processors? "Follow the money." Research posted last June on the website of The Center for Responsive Politics, which provides lobbying information about industries, states that the food processing industry "spent $12.5 million on federal lobbying efforts in 2006, with the Grocery Manufacturers of America and the Food Marketing Institute each spending more than $1 million lobbying on issues ranging from antitrust regulations to disaster and emergency response plans."

In 2005, the center opined that processors "got a break.when President Bush signed a law delaying country-of-origin labeling for meat, except wild and farm-raised fish and shellfish, until September 2008." The industry supports voluntary labeling programs and claims that mandatory labeling would cost it billions of dollars to implement. Some key players in the food processing and sales industry also advocate the use of biotechnology to create more resilient, enriched foods.

Energy and other resources are also of increasing importance to food processors. Food processing companies are big consumers of water, using it as an ingredient, sanitizer agent, cleaning tool, and mover of materials. They also require climates that will produce plentiful crops and/or animal supplies to meet a company's individual need for raw materials - typically located within close proximity to the factory. And while energy requirements are not intensive for food processors as a whole, they must be reliable and reasonably priced.

Ed Yates is president/CEO of the California League of Food Processors, a lobbying group representing about 60 mostly fruit and vegetable processors. He says that of the 14 to 16 million tons of food harvested in his state alone, 95 percent of that activity involves his members.

"Currently most of our members are in the Great Valley located in the central part of California; it's 400 miles long, 50 miles wide. This is one of those rare geographic locations where good soil and a Mediterranean climate come together for optimal growing conditions. Normally it has a good supply of water for crops in a place that would otherwise be a desert." His members also look for a superb highway and railroad infrastructure, a ready labor pool, plus "great university systems with agriculture and teaching components," e.g., the University of California-Berkley and nearby state schools.

Also significant to Yates' group is the rising cost of energy. Yates notes that, in California, "not only are natural gas prices going up, but the cost of delivery is increasing significantly." Yates says other challenges for food processors these days include complying with environmental regulations caused by global warming concerns, dealing with environmental groups, and solving ongoing water quality and supply issues.

Tom Gillpatrick, Ph.D., concurs that energy is a prime driver for changes and trends in food processing. "In my world, which includes processing and manufacturing, `green' is a hot topic," notes the executive director of the Food Industry Leadership Center at Portland State University, one of America's leading food programs located in a business school. "The Food Marketing Institute had its first sustainability summer last month, and the Grocery Manufacturers Association had its first sustainability conference last year."

Frito-Lay, for example "is very aggressively trying to decrease its environmental impact," he notes. "Four of its plants are now off the power grid; one uses solar panels for energy and others use methane, a processing byproduct." Other companies, like Wal-Mart, are looking at the carbon imprint of products throughout the supply chain to determine how they impact the environment in terms of packaging, shipping, processing, etc.

Rising commodity costs also are a grave concern. "Companies hoping to grow their margins are now recasting their forecasts," says Gillpatrick. "My personal best guess is that unless we see relief on energy costs, next fall we'll see major increases on food prices. I don't know how long companies can afford to take hits on their margins. Eventually the deals they got a few years ago will expire, and the new contracts will be much higher."